Now more than ever, investors are pursuing information and dialog on environmental and social topics (E&S). This proxy season, almost 40% of all shareholder proposals filed came from the E&S category, according to Ernst & Young.

So what’s driving this increased level of shareholder-sponsored proposals focused on environmental sustainability and social responsibility?

During 2013, we observed that institutional investors are working to better “understand the potential financial impacts of sustainability issues on companies in their portfolios.” This attentiveness from shareholders has in turn changed what and how companies report.

Most sustainability disclosure is voluntary and is motivated by investor input. As companies heed calls from investors for more transparency, they essentially gain favor with those investors; and this positive relationship between investors and companies appears to be strengthening.

As the Sustainability Accounting Standards Board (SASB) develops standards and key performance indicators with the goal of having material sustainability information required in 10K Reports, more and more investors are viewing sustainability as a way for companies to manage risk, gain competitive advantage, and improve the well-being of their employees, customers, and communities. One day, sustainability reporting may even become a requirement to list on global stock exchanges.

As ESG reporting (environment, social, governance) improves and increases in popularity, we can expect a positive domino effect. With ESG reporting, investors have stronger data to evaluate companies. But as the E&Y report illustrates, there is a more subtle effect: When companies implement more “rigorous sustainability reporting and climate change/sustainability proposals continue to receive high levels of support, it is likely that the pressure on those companies with less comprehensive and detailed reporting will grow.”

Ernst & Young recently released another report, a joint report with Boston College, showing that firms around the world are now regarding sustainability reporting as a core business tradition—additional evidence as to how ESG reporting is becoming a prerequisite to being competitive, not just a competitive advantage.

The future of ESG reporting looks promising for investors who are looking beyond the numbers at the quality and character of companies. First Affirmative, we expect to see this relationship between companies and investors who care about more than the bottom line continue to strengthen in the years to come.

Mention of specific companies or securities should not be considered a recommendation to buy or sell that security. Past performance is no guarantee of future results.